GAO Report Documents Viability of Public Pension Plans

March 26, 2012

by Neil Bomberg

A March report by the Government Accountability Office (GAO), the research arm of the U.S. Congress, documented the viability of public pension plans.

Despite the recent economic downturn, the GAO reported that most large state and local government pension plans "have assets sufficient to cover benefit payments to retirees for a decade or more." The report downplayed any danger of an immediate collapse of public pension plans, which critics of public pension plans have predicated, noting that their methodologies were flawed and that the financial basis for public pension plans naturally creates strong, long-lasting plans that can provide benefits into the foreseeable future.

The report did agree with critics that the Great Recession has had an impact on public pension plans, but also documented that plan sponsors are making adjustments to retirement plans that assure no less than their medium-term viability.

The authors of the report wrote, "Since 2008, the combination of fiscal pressures and increasing contribution requirements has spurred many states and localities to take action to strengthen the financial condition of their plans for the long term, often packaging multiple changes together."

The report found that 35 states have reduced pension benefits, mostly for future employees due to legal provisions protecting benefits for current employees and retirees. A few states, like Colorado, have reduced postretirement benefit increases for all members and beneficiaries of their pension plans. Half the states have increased member contributions, thereby shifting a larger share of the pension costs to employees. Some states, the report found, have shifted to hybrid plans that combine defined-benefit and defined-contribution plans, shifting the investment risks to employees.

The report concluded that growing budget pressures on states and localities will continue to challenge the ability of state and local governments to maintain their pension systems, but for now most are secure, well-funded and at no risk of being unable to meet their obligations to current and future retirees.